In recent years the ide of ‘passive income’ has, thankfully, leapt to the forefront for many investors and retirees. Compared to 10 or 20 years ago, the notion of generating enough passive income to replace your own working income, now rightly represents true financial independence, and this is changing investment patterns and priorities for the better.

And just like direct shares or property, Exchange-traded funds (ETFs) can also be an effective tool to build a passive income stream, offering regular and attractive cash flow throughout the year.

Setting a passive income goal and understanding how to align your personal investing strategy to this mindset can be a game changer…

The power of setting goals

Just as setting goals to improve our personal habits, like exercising or learning a new skill, stirs positive change, goal setting can help to drive financial progress.

for example, seeking to generate say $10,000 annually, can help you create a roadmap to get there. A solid passive income plan goes well beyond seeking high dividend yields and should consider:

A diversified approach: Don’t put it all on black. If income from one asset declines, your other investments could keep providing cash.
True investment capacity: Achieving your goal will require discipline and regular investing. How much can you consistently set aside to your objectives?
Your personal risk tolerance: In times of crisis, wealth transfers from the impatient to the patient. Its important to understand your comfort level with market fluctuations and volatility. This helps you focus on only those ETFs that align with your risk preference and values.
Time horizon: Passive income requires patience. Give your portfolio enough time to grow and make sure you don’t need the invested money anytime soon.
The big picture: Investors should not lose sight of total returns in their pursuit of income. While achieving a passive income target quickly may seem appealing, sacrificing growth potential could be detrimental in the long term.

For more information about constructing an investment or retirement portfolio with an emphasis on income, contact Westmount.